Cannabis Compliance in Canada
Compliance is key
The federal, provincial, and municipal governments will be looking at cannabis compliance reporting as the only determiner for who will maintain their retail license – after all, there’s no precedent when it comes to federally legalizing cannabis. At Greenline POS, we want to make sure that cannabis business owners have all the information needed to enter the industry and stay in business.
The story so far
The federal government has released the Cannabis Act, which lays out the structure for legal, adult-use cannabis. However for cannabis retailers, there isn’t a lot of detail relevant to day-to-day operations. The government of Canada has delegated the majority of those responsibilities to the provinces.
What we have now is a patchwork of different laws for each province, some allowing for private retail, some opting for more of a hybrid model, and some only permitting government-run stores. BC, Alberta, Saskatchewan, Manitoba, and Newfoundland have all laid out their provincial retail frameworks with Ontario on its way in early 2019. For those looking to start cannabis retail businesses in Ontario, it’s very important to understand how compliance has developed in other provinces to anticipate the upcoming Ontario model.
- How do I obtain a retail license? Saskatchewan is closed off from new application until they reopen within 12-18 months depending on demand.
- If you’re looking to enter the next wave, there is emphasis on having retail leases far away from schools/community centers/hospitals due to zoning restrictions. Make sure you understand the minimum distances from public institutions in your city.
- Where can stores buy their product from? Any licensed producer.
- Can stores sell online? Yes, Saskatchewan is the only province that allows for private cannabis e-commerce.
Saskatchewan issued 51 licenses across 32 municipalities via a random lottery process by the SLGA. Qualified businesses were required to submit a Request for Proposal with near-complete business/financial plans, store operational plans, and a POS selection that would demonstrate the store’s ability to comply with provincial and federal laws.
The SLGA opted to not take full control of the supply chain, instead allowing for stores to make their own purchase orders to federally approved Licensed Producers across the country. There are clear benefits to such an approach:
- Product prices can be lower than that of provinces that control the supply chain, as provincial wholesalers won’t take a cut of the sales.
- Product variety can be significantly higher than that of other provinces. A store owner can buy from over 100 Licensed Producers as opposed to 1 supplier.
- If a Licensed Producer owns a Saskatchewan retail license, they have the opportunity to heavily brand their own company and products as well as make excellent margins.
However, there are also clear downsides to this approach, as stores have learned the hard way:
- It is difficult to bargain for great prices from a producer as an independently owned store. The lottery selection has chain retailers over independent retailers (a third of all licences have gone to chain retailers), further reducing the leverage each store has. To alleviate this, some stores have opted to group together as a collective to buy in greater bulk quantities at lower prices.
- Stock management is significantly more time consuming as the store has to coordinate purchase orders, delivery times, and unforeseen challenges between several producers at a time. In a relatively unproven market, it is difficult for them to fully rely on a single producer.
The SLGA has mandated that licensed stores in Saskatchewan generate a monthly csv report that provides the province an in-depth look into overall cannabis quantity and value movements. At a high level, the columns required involve:
- Reporting inventory quantity and value changes for each of Health Canada’s compliance categories including: dried flower, fresh flower, seeds, and non-concentrate oils
- For each category, weight and unit quantity as well as value changes for the following reasons, including but not limited to: sales, transfers, loss/theft, returns, destroyed, along with separate online sales numbers.
- For each category, starting inventory levels from the start of the month.
Greenline has heard directly from stores that the compliance reports is a process that could take days out of every month without a POS system that fully automates the process. As a direct result of that feedback, Greenline POS is incredibly excited to offer Saskatchewan retailers with the ability to select a month, and generate a one-click full compliance report that can be quickly emailed to the SLGA at the end of every month.
Alberta plans to license roughly 250 stores across the province over the next year. As of October 14th, the province has officially issued 17 interim licenses, which allows stores to make purchase orders and stock cannabis in their stores. The full list can be found here.
At an operational level, retailer guidelines can be found here.
All purchase orders for Alberta are to be submitted through https://albertacannabis.org under a retailer account. It’s important to understand that the cannabis purchasing system will be completely separate from that of the liquor system, so stores using liquor POS systems will not be able to use automated purchase order systems that they may be expecting or are used to. As products are regulated by a central source, the AGLC has opted to understand the movements of each individual regulated SKU across their product catalog. At the end of every month, Alberta retailers are required to submit a compliance report that includes every inventory change for each of their SKUs. More information can be found here: https://aglc.ca/documents/federal-compliance-reporting-technical-specifications-document
- Where can a store purchase supply from? The AGLC will fully control the supply chain.
- Can stores run online stores? No, the AGLC will be the sole supplier of online cannabis.
- All employees will have to go through the AGLC’s SellSafe training program.
- Wholesale prices will be roughly $8/gram.
- A single business cannot own more than 15% of the overall retail market.
- The LDB will fully control the legal cannabis supply chain for retailers.
- The LDB will fully control online sales of recreational cannabis.
- Selling of cannabis and liquor at the same locations will not be allowed.
- A single business can own a maximum of 7 stores.
- An LP cannot own a BC cannabis retail business.
BC has no plans for a retail license cap – given the current population and the high demand, we anticipate roughly 500 stores to have licenses by the end of 2019.
Licensing involves buy-in from communities, municipalities, and the provincial regulatory board. More information can be found here: https://www2.gov.bc.ca/gov/content/employment-business/business/liquor-regulation-licensing/cannabis-regulation
As of October 2018, due to the BC government’s delays and lack of clarity in the licensing process, the number of legal stores open for the 17th was 1. Most existing retailers looking to get licensed by the liquor board are expecting to achieve full licensing by December at the earliest, leaving a very large opportunity for gray market retailers to exist and thrive. Many well-established retailers have formed close relationships with their cities to allow for current sales to continue well into legalization via an operational extension application.
The LDB, similar to the AGLC and SLGA, will also be requiring monthly compliance reports from their retailers – details to be published at a future date.
Anticipated Ontario laws
If you are looking to open up a legal cannabis retail business in Ontario, there is a lot of precedent to look at from the other provinces to put your best foot forward.
Across BC, Saskatchewan and Alberta, there have been numerous common themes that will definitely apply to Ontario.
- Having a lease is required in order to submit an application.
- The location must be at least 300m away from nearby schools, hospitals, and community centers (may vary by city).
- Forming and maintaining positive relationships with city council members is a massive advantage when it comes to getting city approvals.
- Having high levels of detail when writing your application will increase your chances of getting approved.
It is anticipated that the LCBO will fully control the cannabis supply chain, similar to that of BC and Alberta. In addition, it is also anticipated that recreational online sales will be fully controlled by the Ontario government distributor.
When it comes to joint ownership of LPs and retailers, the Ontario government has made it clear that an LP can only operate a single retail store, which must be at one of their production facilities. If you are an LP, the Ontario government has not explicitly banned the possibility of franchising a brand.
In the case of Saskatchewan, retail applicants were required to have selected an electronic inventory management system ahead of time to qualify – it’s not out of the realm of possibility that Ontario may work similarly. When looking for your POS selection, pay attention to the key point of compliance report generation – do they provide a section on their reporting dashboard to generate a .csv file to the exact specifications of the province, or do they simply allow for stores to put the information together themselves? One is not like the other, and in fast-paced retail environments, most managers will not be able to afford spending 2 full business days putting the report together each month.
- Where can stores buy cannabis supply from? The provincially controlled OCS (Ontario Cannabis Store) will be the exclusive provider of cannabis products.
- Will stores be able to sell online? No, the OCS will be the exclusive online retailer of recreational cannabis.
POS compliance features
As the central software solution for your retail business, your point-of-sale should be capable of several core functions: integrated credit/debit card transactions, inventory management, and robust reporting. As a cannabis business, you also have the unique need of tracking and generating compliance data to maintain your retail licence and remain in business.
Greenline POS supports the following features to support your operations:
Locks on sales of over 30 grams to prevent staff from selling over the federal possession limits
The 30 gram maximum limit for dried flower sales are defined by the federal government as:
- 5 grams of fresh cannabis is equivalent to 1 gram of cannabis
- 15 grams of edible product is equivalent to 1 gram of cannabis
- 70 grams of liquid product is equivalent to 1 gram of cannabis
- 0.25 grams of concentrates (solid or liquid) is equivalent to 1 gram of cannabis
- 1 cannabis plant seed is equivalent to 1 gram of cannabis
Meaning that if a customer asks for 25 grams of cannabis and 700g of oil, they need to understand that 25 + 700/70 = 35g of cannabis, and that the sale will be blocked. In order to not leave these conversions up to chance, Greenline POS will do these calculations for you and block non-compliant transactions from going through.
Track compliant inventory adjustment reasons
It is not enough to simply track additions and subtractions to your product inventory. Inventory managers need to be able to specify whether the product was sold, lost, stolen, destroyed, etc.
Our discussions with Health Canada indicate that their biggest concern is tracking unsold cannabis and where they end up. Greenline’s inventory management system helps track exactly that, satisfying the needs of both provincial and federal regulators.
Generate provincial compliance reports with 1 click
At the end of the day, the inventory data is only useful if it is formatted into the exact compliance report your province requires. In Greenline POS, users simply need to select the province for which they want the report to be generated, a month/year (along with some additional fields such as your business license number, etc), and click “Generate” to get the exact .csv report they are looking for. Greenline’s .csv reports have been approved and certified by both the AGLC and the SLGA.
In addition to the above, the following features help store owners and managers maintain control of the business:
- Multi-location inventory tracking.
- Immutable inventory history.
- Global product catalogs.
- Security role-based employee access.
Greenline’s strict focus on the Canadian market helps the system adapt incredibly quickly to any changes in the laws. You should have full confidence knowing that your POS software provider works for you to help keep your business compliant.Interested in learning more?